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McDonald's wants to open 70-100 restaurants every year

Friday, 25 April 2014 - 7:05am IST | Place: Mumbai | Agency: dna

According to Euromonitor the overall quick service restaurant (QSR) space in India is a $15 billion industry growing at about 10% annually. While the organised market, where brands like McDonald's come into play, is still around $1.5 billion, Amit Jatia, vice chairman of Westlife Development Ltd and Hardcastle Restaurants Pvt Ltd, says, is set to reach $10-12 billion over the next 10-20 years. He spoke exclusively with dna on increasing competition in the QSR space and McDonald's operations in India's west and south markets. Ashish K Tiwari reports...

The management of Yum! Restaurants recently spoke about taking a leadership position in the Indian QSR segment. What is your take on it?
My sense of the Indian market is that, there will not be a single dominant company. Given the current size of the organised market, every player should be able to do quite well in the country. As far as McDonald's is concerned, it is largely about sustainable, long-term growth and that doesn't mean we are not aggressive or fast. We don't want to quote futuristic numbers about reaching so many restaurants in a particular time-frame.
Our focus is to be market leaders but with the right type of growth and right portfolio of real estate that gives us competitive advantage in the long term.

So what is McDonald's approach of pursuing growth in India?
The easiest thing for us will be to take a food court space or a retail space in a shopping mall because mall owners want us. However, our approach is to have a balance between highstreets, malls, food courts, transit stores (like at Andheri in suburban Mumbai) and most importantly the drive-throughs.
The idea behind having drive-throughs (with 4,000 square feet of seating area, 30-odd car park and one-minute service) is to give our customers a phenomenal experience thus giving us a competitive advantage over other brands.
Last year, we took a re-imaging exercise with the launch of a coffee-house-style food and drink chain called McCafe. This helped us bring a whole new set of consumers making McDonald's a beverage option also.

What is the current footprint of McDonald's in India and what are your growth plans?
McDonald's currently has 350 outlets in India of which 183 is in the west and south markets that are owned and operated by Hardcastle Restaurants. The McCafe outlets are over and above this number. Our stated goals is to open about 70-100 restaurants every year. And if you include north and east operations managed by a different partner / entity, the overall picture becomes much larger.

Last couple of quarters have seen significant pressure on QSR players as far as same-store-sales is concerned. What is the current scenario like?
We have witnessed phenomenal growth rate in the last 10 years and our same-store-sales have continuously been in double digits. My understanding of the market is that when GDP was in the 6-9% range, every industry including QSR did very well. When GDP touched 5.5% for the first time we still did a 6% positive comparable same-store sales (Comps). Now with GDP at 4.7%, we are not invincible and the business will see cost pressures.

There is no denying that week consumer sentiment has impacted the QSR industry just like every other industry. My sense of the QSR industry is that we are recession resistant, not recession proof.

On the business side, how is McDonald's operations fairing?
We are currently in the silent period but for the nine-months – year to date till December last fiscal – we have been able to manage restaurant margins quite well -- we have marginally improved it. Right now there is cost pressure due to inflation, but in our business new stores take a few years before generating positive cash-flow. So in the short-term the more stores you open the more money you loose. That's typically how it pans out.

Inflation and high raw material costs have been a key concern for QSR players. Has there been a price increase off-late?
We use various methods to deal with pricing related challenges and if inflation is around 8% then businesses typically tend to take up prices by 4% and space it out evenly through out the year. The consumer right now is very sensitive on pricing and the aspect of service tax has only added to the troubles.

New product introductions are being done aggressively in the market. What are your plans?
We just launched the royal paneer and chicken burgers in the market and that's working well for us. We are excited about the prospects of McCafe outlets and continue to grow it substantially.

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